US Job Market Surges as Unemployment Drops to 4.1%, Slowing Rate Cut Hopes

The United States labor market delivered a surprise in June, adding 147,000 jobs and defying predictions of a summer slowdown. The latest report from the Labor Department showed the unemployment rate dipping to 4.1%, the lowest level since February, even as many economists had expected it to tick up to 4.3%.

This strong hiring trend paints a mixed picture for the economy. On one hand, steady job growth demonstrates resilience despite trade tensions and higher borrowing costs. On the other hand, it complicates the Federal Reserve’s plans to lower interest rates in the near term. Before the report, traders were betting there was about a one-in-four chance the Fed would cut rates at its July meeting. After the release, those odds dropped sharply to less than 5%, pushing expectations for rate relief further out into September.

Much of June’s job creation came from government hiring, especially in state and local education, which added 73,000 positions. The healthcare sector remained a steady source of growth with 39,000 new jobs, while social assistance contributed another 19,000. However, not every sector shared in the gains. Manufacturing employment shrank by 7,000 jobs, a sign that trade-related pressures continue to weigh on factories. Since January, federal government employment has also been trending down, falling by 69,000 jobs as part of President Donald Trump’s drive to reduce the size of the federal workforce through his Department of Government Efficiency.

Wage growth also showed signs of cooling, increasing just 0.2% over the month and 3.7% over the past year. For workers, slower wage gains may feel disappointing, but for policymakers, it helps ease fears of persistent inflation. Lower inflation pressures reduce the urgency for immediate action by the Federal Reserve, which has been navigating a tricky balance between supporting growth and containing price increases.

While payrolls rose, the labor force shrank by 130,000 people in June. The participation rate fell to 62.3%, the lowest since 2022. This decline in the number of people actively working or looking for work played a role in pushing the unemployment rate down, even as it suggests some hidden weakness beneath the surface.

President Trump has repeatedly called for faster rate cuts to stimulate the economy, especially as his trade policies continue to create uncertainty for businesses. Some economists warn that prolonged trade disputes could trigger “stagflation,” a mix of rising prices and slowing growth. Yet for now, the labor market remains a bright spot, showing that many employers are still willing to hire despite the crosscurrents.

With hiring holding up and inflation cooling, the Federal Reserve is expected to stay patient, watching to see whether this strength can last through the rest of the year.